Volkswagen and Ford get out of car financing business in India: Sources
The auto finance divisions of Volkswagen AG and Ford Motor Co plan to stop granting new loans to car buyers and dealers in India and will be leaving the country, sources informed of the development told Reuters.
Volkswagen Finance Private Ltd, the German automaker’s financing arm, stopped lending to car buyers in India last year and in May urged dealers of all VW brands, including Volkswagen, Skoda and Audi, to find other financing, two sources with direct knowledge said the conversations.
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With some customers failing to make repayments, the finance department has suffered losses and will be closed until December 31, the sources said.
More than 50% of Volkswagen Group’s dealerships use finance-related loans, they said.
Volkswagen Finance Private Ltd said in a statement that it has acquired a significant stake in the Indian loan brokerage portal KUWY Technologies to serve its private customers.
It is in talks with dealers and will review its business strategy by the end of the year, the company said.
The auto finance businesses are classified as Non-Banking Financial Companies (NBFCs) and compete with banks for credit. However, banks have access to cheaper financing and can therefore offer loans at lower interest rates than those from NBFCs or shadow lenders.
To offset the disadvantage, Volkswagen and Ford would incentivize dealers who have used their loan financing, the sources said.
Dealers usually need loans to buy cars from automakers who they then resell to customers.
Volkswagen’s plan to get out of the financing business surprised dealers in the coming weeks leading up to the launch of Skoda’s new sport utility vehicle (SUV) to boost sales in India, the two sources said.
Skoda dealers have been asked to find new funding by the end of the month – a tight deadline before a new model is launched, a source said.
Ford Credit, the automaker’s funding arm, stopped lending to car buyers late last year and will cease lending to dealerships through June 30, two different sources said.
The decision to exit the financing business comes at a time when Ford is deciding on a new strategy for India following the termination of relations with Mahindra & Mahindra on December 31st.
A Ford Motor India spokesman said the company is regularly evaluating market conditions for its lending business and the decision to discontinue it was communicated to dealers in October – before it made an announcement of the Mahindra partnership.
“We are confident that the auto financing sector in India can support the new financing needs of Ford customers and dealers. Our team continues to maintain our existing ledger,” the spokesman said, adding that 25-30% of its dealers do business with Ford Recognition.
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